Unintended consequences of Albert's mandatory oil reserves

One of the largest oil companies in Canada cites a series of potential pitfalls from the decision of the Alberta government to introduce a mandatory reduction in oil production in the province.

On Friday, Suncor, as part of its capital spending forecast for 2019, presented how a reduction in production could have a negative impact on society.

While most of the oil containers support the move, three of Albert's major oil and gas companies are opposed – Suncor, Husky Energy and Imperial Oil. Companies have significant refineries and retail businesses, and are less affected by fluctuations in oil prices.

The government expects that in the first three months of 2019 it will cut production by 325,000 barrels per day and around the rest of the year by about 95,000 barrels in order to eliminate backlogs and improve oil prices in the province.

Most importantly, Suncor stated the potential unintended consequences of a government decision that takes effect in January:

• Impact on safe and reliable operating level of installations, especially during the cold winter months, when the company normally operates at a high level without planned maintenance. Suncor says it will not risk the safety of its employees and performers.
• Influence on crude oil is upgraded and improved in Alberta, which has a limited impact on Alberta's export restrictions.
• Failure to consider historical and recent operations on Syncrude following an unplanned shutdown earlier this year.
• Partial consideration of the production of Fort Hills after completion of the start of the third quarter of 2018.
• Impact on long-term liabilities for takeover or payment for access to the US Gulf Coast.
• Impact on the consumption of own diesel production in mining activities.

Suncor's oilsands facilities are "designed to operate at the lowest levels so they can be safely and reliably managed," according to Sneh Seetal, an e-mail reply to CBC News.

In addition, Seetal said that the pieces assigned were "disproportionately used" for Suncor.

Some analysts say Suncor has the opportunity to not have full capacity in two years of its capacity in 2018, the year on which the limitation will be based.

For example, the Fort Hills oilsands mine increased production throughout the year, so the average oil production was considerably lower than it would be a factory that produces full capacity annually, as in 2019.

Similarly, for Syncrude, which lost production due to malfunctions during the summer months. The plant was a long time, so production decreased. The government of Alberta has said it will use the base calculated over the best six months in a few years to decide on the limitation of each company.

Suncor is the majority owner of both facilities.

"It's fair to say that they are in a particularly disadvantaged position," said Kevin Birn, analyst for oilsands with IHS Markit.

Policy could also affect other sectors, in addition to oil containers, including natural gas and condensate producers in the area, as oilsand is a major consumer of both products. Condensate or thinner – is a type of super-light oil that is used to thin the thick bitumen produced in Alberta, and helps to pass through the pipelines.

Birn said that there could be disturbances in the condensate market. In addition, in the natural gas sector, growth in oils is expected in 2019, but this is unlikely to increase.

"We do not believe that oilsands will consume less natural gas due to limitation, but will not grow to the same extent," he said.

Another possible consequence could be the inability of some oil companies to send the exact type and amount of oil expected to be refineries across the continent. Some contracts or commitments may not be met.

"They may be in a situation that they can not deliver what they promised to be delivered to the refinery," Birn said.